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Vesting in a bewind trust

17 October 2013

Vesting of immovable property in a bewind trust

A bewind trust is a trust where the founder makes a bequest to the beneficiaries and vests the administration of the assets in the trustees. The beneficiaries acquire ownership of the assets, while the trustees only have the administrative control thereof. A bewind trust is usually seen as an option to provide trustees with limited liability. The term arrives from Dutch law (bewind) and Roman-Dutch taw (bewindhebber).

In contrast to the above, the ownership trust is where the founder transfers ownership of assets to the trust which will be administered by the trustee for the benefit of the trust beneficiaries.

Ownership trusts and bewind trusts can easily co-exist, but in South African law, when a choice has to be made between whether the trustee or the beneficiary will have ownership, the trustee ownership is mostly chosen in cases where immovable property must be registered in the name of the trust. The trustee will then have the sole power to dispose of and manage the trust property, and the beneficiaries will only have personal claims. In the bewind trust instance, the beneficiary retains ownership of the trust properly, while the trustees will only have personal rights and claims.

The fundamental principle of trusts is the separation of ownership and enjoyment. In practice a bewind trust may be used in the form of an investment trust which is often a business trust as well. A firm would buy their own building in the name of a trust, but the partners and family members will be the beneficiaries of the income of the trust. Once the building is registered in the name of the trust, it will become an ownership trust. It could happen that the trustees may dispose of the building prior to distributing the profits and buy other immovable property. The beneficiaries will not have a real right in the property if it is registered in the name of the trust, but only when the trustees transfer the property to them. It may be understood that such a trust will only be a bewind trust if the building is registered in the name of the beneficiaries.

From the above, the following important questions beg an answer: ”what is the implication of property which is allocated to a trust for the benefit of the beneficiaries, and in the instance where property is allocated to the beneficiaries, but they may not have control thereover? Should the property in the latter case be registered in the individual names of the beneficiaries or in the name of such bewind trust? Does a bequest of immovable property to the heirs, but the control of the property to a trust divest them from ownership of the property, and should they not be entitled to enjoy registered ownership rights as with a normal bequest?”

According to RCR 21 of 2012 the decision was made that a “bewind trust” must be described in the same manner as any other mortis causa or inter vivos trust, and refers to the below mentioned definition of “trust” as motivation. It is apparent that Conference decided that a bewind trust should therefore vest in the name of the trust and not In the name of the beneficiaries. This is currently the standing authority.

The definition of “Trust” in the Trust Property Control Act 57 of 1988 (the Act) reads as follows:

”Trust” means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed-

(a) To another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the object stated in the trust instrument; or

(b) To the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instruments for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument.

But does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estates Act, 1965 (Act 66 of 1965.”

From the above definition, the Act makes a clear distinction where ownership in property is made over to the trustee for the benefit of the beneficiaries and where the property is made over to the beneficiaries, but the control thereof to the trustees. It is apparent that the bewind trust falls within the latter part.

When looking at the definition of  "trust property” or “property” which reads as follows:

”Trust property or property means movable or immovable property, and includes contingent interests in property which in accordance with the provisions of a trust instrument are to be administered or disposed of by a trustee.”

Bewind trust properly is covered by trust property, although neither the Deeds Registries Act 47 of 1937 nor the Trust Property Control Act makes specific reference to a bewind trust. The only guidance can be found in case law. In Commissioner, South African Revenue Service v Dyefin Textiles (Pty) Ltd 2002(4) SA 606 (N) it was held that the trust in question was a “trust property so called, where the assets of the trust vested in the trustees, as opposed to a “bewind trust”, where the founder made a gift or bequest directly to the beneficiary but vested the control of the assets in a trustee or administrator. (the writer’s underlining).

In Coetzee v Peet Smith Trust en Andere 2003 (5) SA 674 (T) it was also held that "Die trust goed word normaalweg aan trustees in eiendomsreg oorgedra (‘n uitsondering is die geval van ‘n bewindtrust”. Here it is implied that the property should be registered in the name of the beneficiaries.

Taking into consideration the transfer duty implications of a bewind trust when a beneficiary’s "interest" is disposed of, the beneficiaries are the owners of the immovable property and therefore have a real right in the land which is "property" as defined in the Transfer Duty Act 40 of 1949, and which will attract transfer duty. With regard to an ownership trust, the beneficiaries are not the owners of the trust assets, but have a vested right with regard to any capital distributed by the trustee. If the beneficiary disposes of his/her right as beneficiary, it is not a real right in land or a contingent right in a trust and it therefore does not fall within the ambit of property’ as defined in section 1 of the Transfer Duty Act.

It therefore appears as if transfer duty will be payable by the beneficiary as owner in a bewind trust, but no transfer duty will be payable on the beneficiaries’ interest in an ownership trust. From this could one not conclude that immovable property in an inter vivos bewind trust should be registered in the name of the beneficiaries?

If the Act and Transfer Duty Act distinguishes between a bewind trust and an ownership trust, is it not prudent that the Deeds Registry must also distinguish between the two trusts? If it is decided by the powers that be that such bewind trust property should be registered in the name of the beneficiaries to receive partial ownership, there will be no warning to alert the examiner that the property may not be dealt with by the owners, and the following practices are suggested:

To alert the examiner to the fact that the control thereof vests in the trustees, a caveat should be noted, or the deeds should be endorsed to indicate that the property is the subject of an inter vivos bewind trust. In this case the trust deed will be filed as a document or with the caveat.

With regard to a mortis causa bewind trust it is questionable whether a section 40 endorsement of the Administration of Estates Act 66 of 1965 can be used, as the ownership of the property is retained by the beneficiary.

The above mentioned suggestion attempts to invite discussion on the current practice end comments will be welcomed.

Tania Shawe
Law Lecturer, Deeds Training
Pretoria

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